It's not that people don't want to save for retirement, it's because they can't afford to.
By Linda Koco
Nationwide Financial and LPL Financial have partnered up on an advice program for workplace retirement plans that lets plan participants work with a personal advisor or not, as they wish.
This is not the first retirement advice-related partnership for either firm, but this particular arrangement is getting attention because of the heft of the players, and because the program represents a high-profile uptake on changing attitudes toward plan-provided advice.
About the heft: At Nationwide, over half (53 percent) of the $18.2 billion in 2012 sales came from retirement solutions, according to the company’s annual report. As for LPL, it is the nation’s largest independent broker/dealer by revenue, serves about 13,600 financial advisors, and supports 4,500 financial advisors licensed with insurance companies. LPL made news this week when the Financial Industry Regulatory Authority (FINRA) announced that it fined LPL Financial $950,000 for supervisory deficiencies related to the sales of alternative investment products.
Under the new arrangement, Nationwide has integrated LPL’s Worksite Financial Solutions platform into its 401(k) products. The integration will help LPL advisors provide their retirement plan participants with financial advice. This platform offers not only enrollment, employee financial education and financial wellness services but also, for a fee, access to advice during the working years and upon transition to new employment or “retirement and beyond.”
Growing receptivity to advice
Since the last recession and especially in the last couple of years, employers have become much more open to offering access to advice in 401(k) and similar plans, said David Reich, executive vice present-LPL Retirement Partners, San Diego, Calif.
Ten years ago, employers focused plan attention on saving for retirement but this focus was not outcomes-based, he said. That began to change after the 2008-2009 recession, as “employers started realizing that employees really need advice” in order to be better prepared at retirement. This led to a growing recognition that offering advice could help firms “do the right thing for their people.”
The changing mood spurred LPL to develop a proprietary advice program, including a face-to-face advice option, in 2012, he said. LPL Retirement Partners has now signed up four record-keepers, including Nationwide, has five more on ramp for the middle of this year and expects two more by year-end.
That fast growth supports Reich’s view that employer receptivity to advice programs is on the rise. Plan sponsors still do have anxiety around exposure to potential liability for offering an advice program, but employer angst around employees not being prepared for retirement is spurring employers to add the
advice programs anyhow, he said.
Nationwide has been pursuing advice options, too. It fact, the company already has five relationships with independent investment advisory firms, according to Joe Frustaglio, vice president-private sector retirement plan sales at Nationwide.
Some of these Nationwide arrangements have been in place since the early 2000s, he said in an interview. But, like LPL, Nationwide has noticed greater interest from plan sponsors today than a few years ago.
“Plan sponsors are more educated about advice now,” Frustaglio said. They are also feeling pressure to take steps to ensure that Americans stay financially healthy. That is translating into employers wanting to offer “the best available solution for the employees and plan participants.”
The new partnership with LPL will compete with Nationwide’s current third-party advice programs, he said. But in view of the “inadequacy of retirement savings” that exists today, Nationwide decided to expand offerings to include LPL as well, he said.
They need the help
Nationwide is committed to offering advice options because participants “need and ask for help,” Frustaglio said.
A stream of studies and surveys support that observation. For instance, the Insured Retirement Institute (IRI) recently published survey findings on investors with at least $25,000 in investable assets. The findings “demonstrate the value of financial advice and the overall impact advice has on retirement readiness in America,” IRI president and chief executive officer Cathy Weatherford said.
The survey found that a majority of investors lack extensive knowledge on investment products including stocks, bonds and target-date funds. “Perhaps due to this knowledge gap, we found nearly two-thirds of respondents said they invest through a broker or financial planner,” Weatherford said, noting that 30 percent of these investors said their advisor’s recommendation is the top reason for selecting an investment.
A survey published by Aon Hewitt found that employers are responding. Three-fourths of plan sponsors offer online guidance, one-on-one financial counseling, online advice and/or managed accounts, the consulting firm found.
The new partnership
As noted above, advice is one part of an LPL program that also includes plan enrollment, information, education and financial wellness services.
The participants choose whether to access the third-party advice or not and at what level. The available options range from “do it all myself” to “do it for me,” Frustaglio said.
There is no obligation to follow the advice given, he said. For instance, an advisor may suggest that a participant roll the retirement assets out of the plan when transitioning from employment, but the departing employee might decide to leave it in the plan. Or cash it out. Even if the advisor thinks it’s not a good idea for that person, the participant still makes the final decision.
“That’s how it should be,” Frustaglio said. “There should be no strings attached.” It’s third-party advice.
The participant does pay for the advice, he said. “It’s a small fee, a percentage of the daily asset management charge that is deducted daily, and 100 percent of the person’s plan assets do have to be invested in managed money.”
All of this is disclosed, and the participant needs to sign an agreement with the money manager, who then becomes the fiduciary for that person’s assets in the 401(k). “That’s a nice additional fiduciary protection,” he said, “and no one in the plan is subsidizing it for the others who don’t want to use the third-party advice service.”
When the participant leaves the plan, Frustaglio said, “the participant can request to continue with an LPL wealth manager for a fee established at that time. LPL has retirement plan specialists and they partner with wealth mangers to help participants when they make the transition. These advisors have nothing to do with the wealth management that occurs inside the plan.”
The idea of providing advice inside a plan is to encourage participants to put aside money for retirement early on in the working years, LPL’s Reich said. That way, the participant’s money can benefit from compounding, he said. “We encourage them to ‘save as much as you can’ and to ‘save wisely.’”
At the time of retirement or departure, plan advisors can help the participant understand the available options, the impact of cashing out, finding an advisor once outside the plan, etc.
Employees can always go to the human resources department for plan information, he allowed. But the information obtained there will not be personalized to the person’s situation. By contrast, he said, the in-plan advisor provides personalized advice, including help with obtaining continued advice after leaving employment, if that’s what the person wants.
Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda may be reached at email@example.com.
© Entire contents copyright 2014 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.